How New York Allowed Gentrification for $16 Million

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The blocklong building at 45 Rivington Street in Manhattan, which once housed a nursing home, was sold in February to a condominium developer after the city lifted restrictions on its use.CreditDave Sanders for The New York Times

Late last year, as Mayor Bill de Blasio worked to change zoning codes to compel the creation of more affordable housing, an obscure New York City agency quietly lifted all restrictions on the use of a former nursing home on the Lower East Side of Manhattan.

For decades, the blocklong property had been protected from the neighborhood’s transformation by its restrictive deed, which prevented any use for it other than nonprofit residential health care. But the agency, the Department of Citywide Administrative Services, was paid $16.15 million in November by the building owner to lift those protections, without conditions.

That move came amid a whirlwind series of transactions: The building had been sold months before to Allure Group, a nursing-home operator, which then flipped it in February to a condominium developer for $116 million.

Mr. de Blasio said he was blindsided and angered by the developments. But a review of city records, correspondence and lobbying reports suggests that the city mismanaged the situation, accepting more than $16 million to pave the way for precisely the type of luxury housing it has sought to limit.

Lifting deed restrictions in New York is a rare act in itself: Since Mr. de Blasio took office in 2014, there have been at least nine deed restrictions modified or lifted by the city, mostly on vacant lots in areas under development such as First Avenue in Manhattan or areas of the Bronx and Brooklyn.

Former officials with the Department of Citywide Administrative Services could not recall the city’s having received a comparable sum in exchange for lifting such a restriction. Indeed, in three instances since 2014, the city took no money for the change, accepting new restrictions instead. In others, the city received a relative pittance for unused spaces in exchange for lifting the restrictions altogether: $44,000 for a property on Kosciuszko Street in Brooklyn, $86,000 for another on East 137th Street in Harlem. A more desirable lot on St. Nicholas Avenue in Harlem fetched $875,000.

In the case of the former nursing home, the deed restrictions were originally put in place by the city when it sold the property, a red brick former school at 45 Rivington Street, to Village Care, a nonprofit that agreed to run an AIDS hospice at the site.

“The $72 million question is whether the city’s process was manipulated to give a windfall to a few individuals at the public’s expense and deprive a community of a much-needed health care facility,” said Scott M. Stringer, the city’s comptroller, who has opened an inquiry into the matter. The investigation was reported by The Wall Street Journal.

“It’s alarming to think that the people charged with protecting the public’s interest could have sold a binding deed restriction without a legally enforceable guarantee of further community use in return,” he added.

For an administration claiming to be bent on curbing gentrification, and a hands-on mayor who often demands rigorous multisignature memos for making big decisions, questions remain about how the former nursing home, known as Rivington House, came to be unprotected by the city and then sold for a steep profit. Questions have also arisen about the role of the city’s leading lobbyist, James F. Capalino, who, at different points, came to represent the initial seller and final purchaser of the property.

“I’m not happy that it happened,” Mr. de Blasio, a Democrat, told reporters on Monday. “I’m not happy about the fact that I didn’t hear about it in advance, before it became public.”

On Jan. 27, however, the local community board sent a letter to Mr. de Blasio requesting “information as to what transpired as to this transaction.” The letter was remarkably prescient; it warned that Rivington House could be converted into free-market housing, “as has been made possible by the lifting of the deed restriction.” The building was sold in February; city officials never responded to the letter, according to the community board, and Mr. de Blasio never saw it, said Karen Hinton, a spokeswoman for the mayor.

Mr. de Blasio has since expressed disbelief, saying that city officials had been “lied to” by the nursing-home company, Allure Group, which bought Rivington House in February 2015 from Village Care for $28 million. Allure had promised to create a for-profit nursing home that could serve low-income New Yorkers, city officials said. The city has yet to explain why it did not secure that assurance in writing.

On March 1 of this year, before the mayor said he had learned of the issues at Rivington House, the city put a halt on all new deed changes amid an internal review of procedures. “We are looking to see what actions we can take to penalize this company,” the mayor told reporters on Monday, “and again, any policy changes that would inhibit this in the future.”

In seeking to secure the deed change, Village Care had a powerful ally in its corner: Mr. Capalino, a fund-raiser for Mr. de Blasio whose firm earned a record $12.9 million lobbying City Hall in 2015.

Mr. Capalino had been hired in 2013 through October 2014 to push for changes to the Rivington House deed. Village Care had bought the building from the city in 1992 with the permanent restriction on its use, and had cared for patients with H.I.V. and AIDS. In recent years, the nonprofit found that it could no longer support the building and sold it to Allure Group.

In October 2014, Joel Landau, representing Allure Group, wrote to the city about his company’s plans for the building, suggesting it would become a for-profit nursing home. “We are now ready to do whatever we can to move this project forward,” Mr. Landau wrote. “I would also like to keep the home as it is.”

The email, shared by City Hall officials, appeared to be the only written assurance from Allure Group that it would operate a long-term care center in the building if the deed restriction was lifted. Mr. Landau, who also spoke about the building with local officials and the community board, did not respond to a request for comment.

“We were just shocked when we heard that this Allure Group, that gave us the understanding that they were going to run it as a long-term care facility, turned around and sold it,” said Councilwoman Margaret Chin, a Democrat, who advocated keeping some sort of nursing home there.

On May 11, 2015, for a single day, a public notice of a hearing on the proposed deed changes appeared in the City Record. On the same day, Allure Group went into contract to sell the property to the condominium developer. “This action is in the best interest of the city,” the notice read, as do all such notices. None of the local advocates and elected officials were alerted.

“When we found out about it, it was a done deal,” Susan Stetzer, the district manager of the local community board, said of the deed changes. “If there had been proper notification, it’s very likely this never would have happened.”

The city settled on $16.15 million based on two appraisals of the property — one in April 2013, another in December 2014 — using “longstanding valuation practices,” Austin Finan, a spokesman for the mayor, said. Current and former city officials said that the sum, though significant, in fact undervalued the potential resale value of the unrestricted property. The deal was approved by the Mayor’s Office of Contract Services.

In April 2015, before Allure’s sale of the building, Mr. Capalino began representing Slate Acquisition, the developer that would buy the property from Allure Group, though its contract did not cover lobbying related to 45 Rivington Street.

City Hall officials said the deed restriction changes did not come up in the three documented meetings last year between Mr. de Blasio and Mr. Capalino. Instead, the mayor and Mr. Capalino, who has bundled $44,940 in campaign contributions for Mr. de Blasio’s re-election campaign since October, discussed Chinese tourism, a downtown heliport and rezoning in Manhattan, the officials said.

A spokeswoman for Mr. Capalino said he had limited his lobbying on behalf of Village Care to the administrative agency and had had no discussions with the mayor about Rivington House.

Nor was the deal a factor, officials said, in the decision to replace the commissioner of the Department of Citywide Administrative Services in January. The former commissioner, Stacey Cumberbatch, declined to discuss the reason for her removal when reached by phone; she currently works for New York City Health and Hospitals.

“I really don’t want to speak to you, thank you,” she said before hanging up.

A version of this article appears in print on , on Page A1 of the New York edition with the headline: Nursing Home’s Sale to Condo Developer Raises Questions for City. Order Reprints | Today’s Paper | Subscribe